Financial negotiations are once again at the forefront in Catalonia, as talks between the regional government and Spain’s central authorities intensify. At stake are not only billions of euros, but also control over essential financial flows. The focus is on the Generalitat’s bid to secure up to €4 billion beyond current payments and to increase its share of VAT collection to 56.5%. This is far more than a routine budget dispute—it is Catalonia’s attempt to strengthen its autonomy and gain more leverage over its own resources.
The meeting between Pedro Sánchez and Oriol Junqueras has come to symbolize a new chapter in relations between Barcelona and Madrid. Although both sides have faced frequent challenges over the past eighteen months, they now appear ready to compromise. If current agreements are implemented, Catalonia could receive up to €4.7 billion by 2027—an increase of 13%. And this may be just the beginning: a second phase of the reform is under discussion, which could provide the region with an additional €4 billion by giving it broader control over its own financial powers.
The Catalan financial puzzle
The exact timeline for the adoption of the new financing mechanism remains unclear. Neither Salvador Illa’s team nor representatives of the Republican Left are rushing to disclose details. What is known is that the discussions center around funding for areas such as the Mossos d’Esquadra police, the penitentiary system, and the judiciary — all traditional responsibilities of the Generalitat. In 2023, direct transfers from Madrid to Catalonia amounted to about 3.7 billion euros, but now regional authorities want to receive these funds directly, bypassing complex bureaucratic procedures.
Spain’s Finance Minister, María Jesús Montero, has repeatedly emphasized that the new approach to fund allocation must take into account the unique characteristics of each region. The calculations will factor in not only population size but also age demographics and territorial dispersion, which directly affect the cost of public services. However, Catalonia is pushing for even greater autonomy — specifically, for an increase in its share of VAT revenue from 50% to 56.5%. This would allow the region to rely less on the central government and reduce its dependence on direct subsidies.
A Bid for Greater Autonomy
ERC claims that the region could potentially receive as much as 4.5 billion euros if it manages to negotiate another 20% of VAT revenue. This would grant Catalonia much more financial independence, but it also entails certain risks: in the event of an economic downturn, revenues could fall sharply. Nevertheless, this represents an opportunity for Catalonia to strengthen its autonomy and manage a significant portion of its own budget.
However, there are still significant obstacles on the road to full financial independence. It will be necessary to create a special investment consortium and develop all the necessary infrastructure so that the Catalan Tax Agency (ATC) can collect income tax autonomously. Currently, the regional office lacks both sufficient staff and the required technology to handle such volumes—amounting to €30 billion in tax revenue.
Tax control
The agreement reached this week opens up new opportunities for Catalonia: the region will now be able to control 56.5% of revenue from income tax and VAT, including for small businesses. This is a major step forward compared to the position of the previous government under Pere Aragonès, which insisted on full control over all taxes and only then transferring a portion to Madrid. At the time, this idea closely resembled proposals from the Convergència party a decade ago.
For the current Catalan government, the question of funding is not just economic but also political. The long months without an approved budget have seriously complicated the work of Illa’s administration. Now that negotiations with Madrid have finally resumed, there is a chance to agree on a budget for the current year. For now, however, the region must continue operating under the extended 2023 rules.
Political nuances
After the meeting at Moncloa, Oriol Junqueras tempered excessive optimism by reminding everyone that the issue of transferring income tax collection powers to Catalonia remains unresolved. For ERC, this is a matter of principle: the party is not ready to discuss the budget until progress is made on this front. Negotiations are ongoing, and their outcome will largely determine how far Catalonia can advance on the path toward financial autonomy.
